Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/105118
Authors: 
Hintermann, Beat
Rutherford, Thomas F.
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 5044
Abstract: 
We develop a theory of social planning with a concern for economic coercion, which we define as the difference between consumers' actual utility, and the counterfactual utility they expect to obtain if they were able to set policy themselves. Reasons to limit economic coercion include protecting minorities, preventing disenfranchised groups from engaging in socially costly behavior, or political economy considerations. As long as consumers are fully rational, limiting coercion is equivalent to placing more welfare weight on coerced consumers at the expense of others. If, however, consumers are not fully rational and/or informed, counterfactual utility becomes endogenous to current policy, and the welfare loss associated with limiting coercion increases. We set up a numerical version of our model and find that the error-related welfare loss can be substantial.
Subjects: 
coercion
social planning
public finance
counterfactual utility
JEL: 
D03
D04
H21
H22
H23
H31
H41
Document Type: 
Working Paper

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